Dealers Unwind Carry Trades As Dollar Rallies

Dealers were unwinding carry trades in which market participants had sold off the U.S. dollar and bought the higher-yielding Mexican peso because the greenback appreciated.

  • 25 Mar 2005
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Dealers were unwinding carry trades in which market participants had sold off the U.S. dollar and bought the higher-yielding Mexican peso because the greenback appreciated. The dollar rallied against the peso last Monday in anticipation of the Federal Reserve Board's interest rate hike to 2.75% from 2.5%, but declined slightly Tuesday after the U.S. Labor Department reported inflation rose by 0.4% from last month.

Traders were chasing the spot market last week, where the dollar rose to about MXP11.22 Monday, up from about MXP10.98 two weeks before, while one-month implied volatility rose to 8.2% from 7%.

Michael Gavin, head of Latin America economic research with UBS Securities in Stamford, Conn., said the U.S. Treasury market was driving the activity, with yield on 10-year Treasury notes rising two weeks ago to almost 4.6% from 4% in early February. Last week yields on the 10-year bonds reached their highest level since June at 4.65%.

A trader said volumes were light due to the upcoming long weekend. The previous week speculative players had boosted volumes through purchasing short-dated dollar calls and peso puts after dealers were caught with short option positions in a strengthening dollar environment.

  • 25 Mar 2005

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1 JPMorgan 94,925.33 384 8.39%
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4 Barclays 75,288.19 241 6.66%
5 Goldman Sachs 68,504.71 208 6.06%

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2 Bank of America Merrill Lynch 18,968.25 36 8.63%
3 HSBC 18,103.95 50 8.24%
4 BNP Paribas 8,911.57 55 4.05%
5 SG Corporate & Investment Banking 8,885.00 54 4.04%

Bookrunners of all EMEA ECM Issuance

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  • Today
1 JPMorgan 8,714.26 35 8.36%
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3 Goldman Sachs 7,736.57 37 7.42%
4 Citi 6,897.11 46 6.62%
5 Bank of America Merrill Lynch 6,215.31 24 5.96%